- International Monetary Fund
- Published Date:
- November 1997
A distinguishing feature of the GCC countries is the significant proportion of expatriate workers in the labor force and the segmentation of their labor markets. Better educated nationals traditionally have been attracted to the government sector because of higher wages and generous benefits; early retirement with pension; and job security and social status associated with government employment. Private sector activity is heavily dependent on expatriate labor, which is readily available on the basis of fixed term, job-specific contracts under the sponsorship of nationals. Wages of expatriate workers are substantially lower than those for nationals at similar skill levels, and there are no significant nonwage benefits in the private sector. The segmentation of the labor market is such that in some GCC countries as much as 90 percent of the national labor force is employed in the public sector with expatriate workers comprising a comparably high ratio in the private sector.
The labor market conditions in the GCC countries are expected to tighten in the coming years, with a rapidly growing number of young, educated nationals entering the labor force at a time when the governments can no longer act as employers of first and last resort. There are budgetary considerations in some countries and all countries are stressing the need to foster private sector activity and employment for efficiency reasons. Indeed, labor market issues are clearly recognized as constituting pressing challenges for policymakers in the period ahead. Accordingly, the GCC governments have already embarked on formulating labor market strategies to create employment opportunities for nationals within a broader framework of fiscal consolidation and structural economic reforms.
Policy instruments available to the GCC policymakers cover a broad spectrum, ranging from market solutions at one extreme to mandatory and administrative policies at the other extreme. The key challenge is to develop an effective strategy to increase the efficiency of the labor market and reduce its segmentation by relying more on market forces and less on mandatory employment policies, which could prove counterproductive in the long run and would raise labor costs.
This paper is organized as follows. Section II establishes the conceptual setting and provides the background. Section III describes the present structure of the labor market in the GCC countries. The evolving labor market challenges and policies in the GCC countries are discussed in Section IV. Section V discusses the impact of labor market policies pursued by the GCC countries on the other countries in the MENA region. Concluding remarks are summarized in Section VI.